Home prices on the rise, but not ownership

Workers build a home in Rancho Santa Fe, Calif. Home prices are now posting double-digit gains in some of the places where so-called negative equity is severe.

Workers build a home in Rancho Santa Fe, Calif. Home prices are now posting double-digit gains in some of the places where so-called negative equity is severe. (Sam Hodgson / Bloomberg)

Alejandro Lazo

The sharp increase in home prices — particularly in regional markets such as Phoenix and Las Vegas, which had been so decimated by the bust — is raising concern among some economists.

Indeed, home prices are now posting double-digit gains in some of the places where so-called negative equity is severe. According to data from S&P;/Case-Shiller, prices in Las Vegas rose 10.0% over the year and Phoenix was up 22.8%.

It is those kinds of big increases that could fuel speculation.

“It does concern me a bit,” Zillow.com chief economist Stan Humphries said. “It encourages people to think about housing as a short-term investment, instead of a long-term investment.”

The S&P;/Case Shiller 20-city index rose 5.5% from the same month a year earlier, up in 19 out of the 20 metro areas tracked. That was a strong increase and a sign that housing will probably continue to rebound this year with supply tight and demand strong.

While prices may be rising, homeownership is struggling, an indication that investors are playing a big part in fueling the market's rebound. The Census Bureau said Tuesday that national homeownership fell 0.6% to 65.4% in the fourth quarter over the same period a year earlier.

Humphries said that the 5.5% increase was “really strong” and is “only going to get stronger next month,” according to home price data tracked by Zillow.

The spike in prices is masking the trouble that borrowers with underwater mortgages are facing. In fact, it’s precisely because so many borrowers cannot get out from underneath their upside-down homes that prices are rising so much, economists have said, because those people are simply hanging on and not putting their homes on the market.